Conference Committee reaches Agreement on FRS changes
May 2, 2011
Late Friday evening, April 29, 2011, the House and Senate Conference committee charged with hammering out the changes to the Florida Retirement System reached an agreement on what will be in the FRS conforming bill. Most of the changes will not impact current FRS enrollees.
Current law is maintained for the following provisions:
· Defined benefit (DB) plan continues as currently offered (new title: “Pension Plan”). *NOTE* DB closes to elected officials and senior management hired on or after July 1.
· Defined Contribution (DC) plan continues as currently offered (new title: Investment Plan). Elected officials and senior management hired on or after July 1, required to enter DC plan ONLY.
· Health Insurance Subsidy (HIS) continues as in current law.
· There is no compulsory nor mandatory enrollment in the defined contribution (investment) plan – except for elected officials and senior management hired on or after July 1.
Current Employees will face the following changes under the agreement:
· 3% required employee contribution of all FRS enrolled employees – except those in DROP
· Cost of Living Adjustment (COLA): This is a bit complicated. *NOTE* COLA changes will not affect current retirees, including those in DROP.
• Effective July 1, the COLA benefit calculation is suspended for 5 years until 2016. Our current understanding of this COLA reform provision is that this 5-year suspension applies to current employees. The Conference Committee agreement anticipates that in 2016, the FRS COLA benefit will return to its current law status of 3% per year (assuming the FRS Trust Fund is funded on a fiscally sound basis, and that funding is available to pay for this).
• For current employees, this means that an employee’s COLA benefit will be prorated across the total number of years of career service. Take, for example, an employee who has 25 years of creditable service on June 30, 2011, and continues to work for another 5 years for a total of 30 years of career service. Upon retirement, that employee’s COLA benefit would be calculated by dividing the number of career service years that include COLA credit by the total number of years of career service -- in this example, dividing 25 years (COLA credit) by 30 years (total career service). Thus, the COLA benefit to which the employee would be entitled is 2.499% (instead of the current law COLA benefit of 3%).
Employees entering FRS employment on or after July 1, 2011 face the following changes:
· For employees who initially enroll in the pension plan, on or after July 1, vesting increases to 8 years (from current law: 6 years).
· Although DROP continues intact, employees entering DROP on or after July 1, 2011 will earn a reduced interest rate of 1.3% (instead of current law 6.5%)
· Average final compensation will increase to 8 highest years of creditable service for employees enrolled on or after July 1, 2011 (instead of current law: 5 highest years)
· The retirement eligibility for age for employees enrolled on or after July 1, 2011 will increase to age 65 years (from current law: age 62).
· The retirement eligibility for years of creditable service will increase to 33 years (from current law : 30 years).
· Employees who enroll in the Defined Contribution Plan on or after July 1, 2011 will be 100% vested of employer contributions after 8 years of creditable service.
